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Driving savings through better contract management

In her first public speech since being reappointed home secretary, Theresa May warned that "there is no ducking the fact that police spending will have to come down again".

But the police are not the only ones who are likely to face cuts in spending. With the tone of the new government's term in office set, there is no doubt that the need to identify supply chain efficiencies will remain high on the agenda for police forces and local authorities throughout the country.

With monitoring and improving existing contracts a priority for public sector procurement departments, it is essential that the police and local authorities avail themselves of any tools that might deliver savings. With this in mind, we outline the top five contract management efficiency measures that can deliver saving in existing contracts and be used to future-proof new contracts: 

1. Actively managing the contract

It may sound obvious but it is not sufficient to negotiate and sign a favourable contract. In order to make the most of existing contracts, it is essential that key individuals understand the terms of the contract and remain familiar with what is to be delivered under those terms. It is all too easy for commercial and legal teams to heavily negotiate a contract only to step aside at its conclusion. The contract is then filed away and those at the coal face  take over the day to day management of the contract with little reference to its terms. The danger is that the link between the negotiated contract and the service delivered is lost. Procurement teams should regularly dust off each contract and interpret its terms to ensure that the service delivered reflects the substance of what is received in practice. Where this is not the case, the supplier can be approached with the contract terms as collateral.

2. Benchmarking

Although benchmarking can be a major point of contention with suppliers, it can also be an essential tool in ensuring that competitive pricing is retained throughout the life of the contract.  For any medium to long term contractual arrangement, procurement departments should identify those where benchmarking is permitted and consider invoking the terms.

When entering into a new contract, should the duration of the contract term warrant it, the inclusion of benchmarking provisions should be considered. Due regard should be given to the following issues:

  • whether the benchmarking results are to be binding or merely a trigger for price renegotiation;
  • whether rights of termination are to be attached to the results of any benchmarking exercise (factoring in the costs of transition to new provider);
  • which strands/service lines of any service/contract are to be benchmarked;
  • the identity of the benchmark advisor and the data reference points;
  • the frequency of benchmarking and when any resulting price adjustments are to take effect. 

3. Incentives

Like benchmarking, where existing contracts include price performance mechanisms, these can be invoked to ensure that the procurement teams obtain best value and make savings where performance is not delivered as per the service level agreement. Other options for incentivising good performance when letting new contracts may be to include profit share structures to encourage innovation or to let contracts with performance related extension periods.

4. Varying the terms

Another contract term that may permit the contract to be flexed to obtain better value is the change protocol. There is obviously an attraction in extracting more of the same from a supplier or a little something extra without increasing the cost but this is a tactic where extreme caution should be exercised in the public sector. If any variation is such that it amounts to a "new contract" under the public procurement rules it may be that the variation would require the contract to be re-tendered or face potential legal challenge. As such, variation is a tool that may be available to procurement teams but it will probably require the original procurement documents to be revisited. It should therefore only be invoked upon commercial, technical and legal advice.

5. Relationships

Those managing the contract from the police or local authorities and the supplier may find themselves working very closely together. It is imperative that this relationship is nurtured to facilitate best value   and that contract managers are equipped with the knowledge and skills to obtain best value. During the performance of a contract there is often a certain degree of give and take between the supplier and the purchaser. This needs to be monitored to ensure that the net outcome is beneficial for the public sector recipient. Trust must be built in order to confidently raise and resolve issues and in some cases better value may be derived by a change of personnel. 

Comment

Value for money does not always equate to lowest price. It involves obtaining the best balance between service quality and cost – both at the outset and over the life of the contract. Although skilful contract management on its own may not be entirely sufficient to deliver the extensive savings that are needed in the foreseeable future, it can certainly contribute and it is a relatively painless place to start.

At TLT we experienced in advising public sector clients on how to obtain best value from contractual arrangements. Should you wish to discuss how to make existing or future contracts deliver optimum value please contact Philip Roberts philip.roberts@TLTsolicitors.com or Bill Hull bill.hull@TLTsolicitors.com.

Contributor: Claire Welch

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at June 2015. Specific advice should be sought for specific cases; we cannot be held responsible for any action (or decision not to take action) made in reliance upon the content of this publication.

TLT LLP is a limited liability partnership registered in England & Wales number OC 308658 whose registered office is at One Redcliff Street, Bristol BS1 6TP England. A list of members (all of whom are solicitors or lawyers) can be inspected by visiting the People section of this website. TLT LLP is authorised and regulated by the Solicitors Regulation Authority under number 406297.

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